Watts & Hughes Construction Limited v Biala

[2021] NZHC 290

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-106

[2021] NZHC 290

UNDER

the Companies Act 1993

BETWEEN

WATTS & HUGHES CONSTRUCTION LIMITED

Plaintiff

AND

VIJAY BIALA

Defendant

On the papers
Counsel:	D J Jackson for the Plaintiff S Cottrell for the Defendant
Judgment:	26 February 2021

JUDGMENT OF CULL J

[1]                 The plaintiff’s reckless trading claim against the defendant was dismissed in my judgment dated 17 November 2020. Mr Biala has filed a memorandum seeking costs of $60,419.00 on a 2B basis with a 50 per cent increase to recognise the Calderbank offers made by him, and $18,828.55 in disbursements.

[2]                 The plaintiff agrees that 2B scale costs are applicable, but challenges the defendants total time allocation, the increased costs application and whether the defendant’s claimed disbursement fees are reasonable or can be said to have been incurred by the defendant.

WATTS & HUGHES CONSTRUCTION LIMITED v BIALA [2021] NZHC 290 [26 February 2021]

Appropriate Time Allocations

[3]                 Counsel disagree as to the appropriate allocations for various memoranda filed throughout the proceedings, preparation and attendance of the judicial settlement conference and the length of hearing.

Disputed memoranda

[4]                 The parties dispute the time allocations for six of the memoranda filed. These memoranda largely deal with case management and timetabling issues. The defendant seeks an allowance of 0.4 for five of the contested memoranda. In relation to the memorandum dated 1 July 2019, the defendant seeks an allowance of 0.2 days.     Mr Cottrell submits that despite being a revised version of an earlier memorandum, which Counsel have agreed should receive an allocation of 0.4 days, this was a filed memorandum and thus can be properly claimed as a legitimate step in the proceedings. The plaintiff contends that a 0.2 allowance for the first five memoranda and no allocation at all for the memorandum dated 1 July 2019 is appropriate.

[5]                 I accept the plaintiff’s submission that an allowance of 0.4 is too high. These memoranda involved simple timetabling issues and the provision of a witness list. They are not analogous to the comprehensive memoranda filed for case management conferences that may receive an allocation of 0.4 for 2B costs under sch 3 of the High Court Rules. Such a high allowance for these memoranda may very well amount to an award of costs that were not in fact incurred.

[6]                 However, I accept that the defendant should receive an allowance for the revised memorandum dated 1 July 2019. The filing of the memorandum was a step in the proceedings. Some allowance is properly required to recognise this.

[7]                 Accordingly, I award the defendant an allocation of 0.2 for each contested memorandum.

Judicial Settlement Conference

[8]                 Counsel for the defendant seeks costs for preparation and appearance at the judicial settlement conference on 3 September 2019. This is not a practice under the

High Court Rules. Mr Cottrell argues that, as costs for judicial settlement conferences are provided for under the District Court Rules, these rules should apply by analogy in this case. However, the legislature has not made such similar provision in the  High Court Rules. I consider it is inappropriate to apply the District Court Rules in this instance.

[9]                 The hearing occupied three quarters of the final day. I accept the defendant’s submission that an allowance of 2.75 days should be given for appearance at the hearing.

[10]             Costs are awarded on a 2B basis, applying the change in recovery rate for 2B costs which came into effect during the proceedings, and are calculated at a sum of

$38,944.50. This is set out as Attachment 1 to this judgment.

Increased Costs

[11]             Counsel for the defendant submits that it made two Calderbank offers to the plaintiff, each of which were more beneficial than the final result for the plaintiff. Accordingly, the defendant seeks an uplift of 50 per cent on costs for steps taken in the proceeding after the offers were made.1 The plaintiff argues it was not unreasonable to reject the offers and thus an uplift would be inappropriate.

[12]             The effect of a Calderbank Offer on an award of costs is at the discretion of the Court.2 The underlying purpose of the rules relating to Calderbank offers is to recognise the cost efficiencies gained by way of making offers to settle in advance of the hearing of the case.3 The onus is on the defendant to persuade the Court that the claimed increased costs award is justified.4 The focus of the inquiry is on the actions of the paying party in the litigation and whether they were reasonable.5 Reasonableness is a broad inquiry which involves taking into account, amongst other matters, the size and timing of the offer, the reasonable expectations of the party

1      Pursuant to High Court Rules 14.6(3)(b)(v), 14.10 and 14.11.

2      High Court Rule 14.11(1).

3      Weaver v HML Nominees Ltd [2016] NZHC 473 at [17]

4      Strachan v Benbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].

5      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

refusing the offer and on the parties’ ability, at the time of the offer, to assess the merits of the case.6

[13]             The defendant made two offers to the plaintiff to discontinue the proceedings. A brief description of the two offers follows:

(a)The first offer was contained in an email between counsel dated 17 June 2019. This was “a walk away settlement offer” with no issue as to costs. The defendant’s Counsel simply noted the limited chance of the plaintiff’s success and that the impecuniosity of the defendant meant that even if the claim was successful, any judgment sum would likely be unrecoverable. This offer occurred early in the proceedings, following discovery, with no explanation as to why the plaintiff would be unsuccessful.

(b)The second offer was made on 13 September 2019. This was contained in an email response to the plaintiff’s own Calderbank offer, which the defendant rejected. The defendant offered the plaintiff $15,000, with its payment spread over 12 months. Once again, Mr Cottrell said the plaintiff would “very likely fail” his claim. This offer was made following an unsuccessful judicial settlement conference, where the issues had been canvassed by the parties.

[14]             I do not accept the defendant’s submission that it was unreasonable for the plaintiff to reject Mr Biala’s first offer. The Court will not award increased costs based solely on the making of a “walk away” settlement offer.7 This offer was made early in the proceedings, prior to the judicial settlement conference. It is reasonable that the plaintiff would still be assessing the merits of their case and be hopeful of the possibility of obtaining some award for their loss, over and above simply abandoning the litigation.

6      Samson v Mourant [2016] NZHC 1119 at [44]; and Weaver v HML Nominees Ltd, above n 3, at [30].

7      Hira Bhana & Co Ltd v PGG Wrightson Ltd [2007] NZCA 342 at [26].

[15]             The plaintiff was, however, not reasonably justified in rejecting the defendant’s second offer:

(a)The second offer amounted to approximately 40 per cent of what the plaintiff sought overall in the proceedings. This is a relatively substantial portion of the claim.8 This payment was to be spread over 12 months, amounting to monthly payments of $1,250.

(b)The sufficiency of the offer is, in my opinion, heightened by my finding that the award sought by the plaintiff was nominal for a construction company of Watts & Hughes’ size.9 It was conceded by the plaintiff during the hearing that the amount sought in the proceedings did not constitute a significant loss for Watts & Hughes.10 Thus, the defendant’s offer to pay a substantial portion of this claim already representing only a minor loss on behalf of the plaintiff (albeit to be paid in instalments over a period of time) seems reasonable, and not, as the plaintiff indicates, “unacceptable on a commercial basis.”

(c)The information available to the plaintiff and the ability for the plaintiff to assess the merits of the claim at the time of the offer is relevant.11 The plaintiff argues the defendant made the settlement offers without drawing the plaintiff’s attention to any significant weakness in their claim but made the offers on a costs avoidance basis only. It was only when the defendant’s evidence brief was disclosed later, the plaintiff says, that any evidence was provided as to why it’s claim might fail.

In making both Calderbank offers, Mr Cottrell warned the plaintiff that the director’s behaviour would not rise to a level rendering him personally liable for the plaintiff’s loss. Further, the test for reckless

8      In Kelly v Lasque Construction Ltd [2015] NZHC 3368 at [33], an offer that was one fifth of the overall claim was deemed a “relatively substantial portion of the claim” particularly when weighed against the factor that there was little chance of the plaintiff succeeding against the defendant.

9      Watts & Hughes Construction Ltd v Biala [2020] NZHC 3041 at [70].

10 At [70].

11 McDonald v FAI (NZ) General Insurance Co Ltd (2002) 16 PRNZ 298 (HC) at [17].

trading was clear. In order to be liable under s 135 of the Companies Act 1993, a director’s conduct must have created substantial risk of serious loss. It was accepted by the plaintiff at trial that its loss was not significant.12 In the circumstances, the plaintiff should have been able to identify that the amount of loss they had suffered was not of the kind necessary to substantiate a reckless trading claim, prior to receiving the expert witness briefs. The plaintiff would have had the benefit also of canvassing these issues in the judicial settlement conference. The benefit of walking away with a settlement offer and no costs liability from a flawed proceeding was clear.

(d)The plaintiff knew the defendant was impecunious. The likelihood of obtaining any sum awarded in their favour in the judgment was slim. This was the plaintiff’s best chance at obtaining some money from the defendant. Although a settlement offer need not be accepted simply because of the claim that a party will go into liquidation,13 when taking this into account amongst other considerations, such as the merits of the case and the relatively substantial portion of the settlement offer, this helps to inform the reasonableness of the offer.

[16]             Accordingly, I find that a 25 per cent increase in costs is appropriate here. This adequately recognises Mr Biala’s efforts to settle this litigation prior to the hearing. A 25 percent uplift increases the costs award by $5,945.13, bringing the costs award to

$44,889.63.

Disbursements

[17]             The plaintiff has two objections to the payment of disbursements. First, it is contended that the disbursements have not been incurred by the party seeking costs, but rather by Hicki Ltd (the director of which being the son of the defendant in the current proceedings). Second, the plaintiff submits the amount claimed as disbursements is unreasonable.

12     Watts & Hughes v Biala, above n 9, at [70].

13     Kelly v Lasque Construction Ltd, above n 8, at [34].

[18]             I find that the disbursements have been incurred by Mr Biala. Although the original invoices were addressed to Hicki Ltd, upon objection by plaintiff counsel these invoices were amended to address the defendant directly. I am satisfied the costs faced by Mr Biala in the proceedings can be accurately described as incurred by him.

[19]             High Court Rule 14.12(2) requires any claimed and verified disbursement to be included in the costs awarded for a proceeding must be reasonable in amount.14 The plaintiff argues that, when comparing the fees of their own expert witness, who charged a total fee of $4,550 for 28 hours at a charge out rate of $163.50 an hour, to the defendant’s expert witness, who claims 31 hours at $500 an hour, plus travel and accommodation expenses, the defendants disbursements are unreasonable. Accordingly, it is submitted that disbursements should be tempered by the Court by reference to the actual costs invoiced by the plaintiff.

[20]             I am unable to uphold the plaintiff’s submissions. The defendant’s expert witness, Mr Shi, was the accountant of the liquidated company subject to the plaintiff’s reckless trading claim. His evidence was both necessary in the proceedings and helpful. I note that the number of hours Mr Shi charged the defendant are similar to those billed for by the plaintiff’s expert witness. Mr Shi’s charge out rate, while higher than the plaintiff’s expert, is not unreasonable.

[21]             I find Mr Biala’s disbursements are reasonable and have been incurred by him. The plaintiff must pay the defendant $18,828.55 for his disbursements.

Order

[22]I order Watts & Hughes to pay Mr Biala increased 2B costs in the amount of

$44,889.63, plus disbursements in the amount of $18,828.55.

Cull J

Solicitors:

Davidson Legal, Christchurch for the Plaintiff GCA Lawyers, Christchurch for the Respondent

14     High Court Rule 14.12(2)(d).

Attachment 1

Stage of proceeding	Time	Rate	Costs
Commencement of defence	2
List of documents on discovery	1.5
Inspection	1.5
Memorandum 28/05/2018	0.4
Memorandum 22/08/2018	0.2
List appearance 22/11/2018	0.2
Memorandum 13/02/2019	0.2
Memorandum 30/04/2019	0.2
Memorandum 24/06/2019	0.4
Memorandum 01/07/2019	0.2
2B Costs to 31 July 2019	6.8	2230	15164
Memorandum 01/10/2019	0.2
Memorandum 07/02/2020	0.2
Memorandum 14/02/2020	0.2
Memorandum 20/05/2020	0.2
Memorandum 28/07/2020	0.4
Preparation for briefs	3
Preparation for hearing	3
Appearance at hearing	2.75
2B costs from 1 August 2019	9.95	2390	23780.5
25 per cent uplift for costs following 3 September 2019 Offer:			29725.63
Total 2B costs	44889.63